Is Northern Virginia Turning the Corner?

Monthly changes in professional and business services employment and federal employment in Northern Virginia, June 2011 to June 2016. Despite decline in federal spending, the all-important Professional & Business Services sector is performing handsomely.
Monthly changes in professional and business services employment and federal employment in Northern Virginia, June 2011 to June 2016. Despite a decline in federal employment and procurement, NoVa’s Professional & Business Services sector is performing handsomely. Source: “2016 State of the Commonwealth Report.”

As Northern Virginia goes, so goes Virginia. The wealthy Virginia suburbs of Washington, D.C., account for 45% of the state’s economic output. If NoVa is in a slump, as it has been the past few years, a peppy performance in Richmond, Hampton Roads or elsewhere won’t do much to counteract it.

The sequestration-driven decline in federal government employment and a cutback in procurement contracts hit Northern Virginia hard over the decade. But James V. Koch, an Old Dominion University economics professor and author of the “2016 State of the Commonwealth Report,” sees hints of a turnaround. Major NoVa employers, once tethered to the federal government, have been diversifying their business base by making inroads into the private sector.

What’s his evidence?

Federal spending in the Washington metropolitan economy has declined over the decade. “Between mid-2011 and 2014, federal employment each month was consistently lower than the comparable month in the previous year,” writes Koch, in the report, which was sponsored by the Virginia Chamber Foundation. “This had, and still has significant consequences for the region because annual average wages per federal employee approximate $100,000.” Moreover, federal procurement spending in the Washington region declined dramatically, from a peak of $82.5 billion in 2010 to $71 billion in 2015.

The good news:

Since the middle of 2014 … a new pattern has emerged. The professional and business services sector has begun to grow even though federal employment and procurement remain relatively flat. While it is a bit early to declare that this signals the emergence of a new economic model for Northern Virginia, clearly this is a potentially significant change. It appears that professional and business services companies in Northern Virginia may be diversifying their markets and becoming less reliant on federal spending. If so, it bodes well for the region.

The professional & business services sector contributed roughly one-third of the 35,400 net new jobs created in Northern Virginia between June 2015 and June 2016, Koch notes.

It will not be easy for NoVa’s tech companies to shift from a business-to-government model to a business-to-business model, says Koch, but he sees the region’s expertise in cyber-security as an obvious way to make inroads with private-sector clients. He also sees potential in the biotechnology sector. However, for NoVa’s economy to take off, other industries will have to make the switch as well, and it is less clear what they might be.

“Northern Virginia has the assets to turn the corner and become a more business-oriented, globally competitive region,” he says. “But will it happen? Stay tuned.”

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12 responses to “Is Northern Virginia Turning the Corner?”

  1. […] Interesting tidbit from this morning’s Bacon’s Rebellion, which if it isn’t on your short list of Virginia new media outlets to read, it ought to be. […]

  2. LarrytheG Avatar

    I think Northern Virginia is pretty much Govt-centric and probably always will be – and it’s not just DOD – just look at the US Budget with the various categories and virtually all of them will have a physical presence in the Washington Metro area as – HQs.

    If a govt agency exists – they almost surely have an office in the Washington Area and it’s often the HQ for that agency.

    And a way to confirm this is to realize that the Washington Area is either at the top or close to it – in mean annual income – across the entire nation!

    So I question the conventional wisdom that sequester has hurt NoVa when as big as DOD is – it has a LOT of competition from the other Federal agencies – and neither those other agencies nor the DOD activities typically downsize when budgets reduce because most of them are the HQ office that directs all field activities and it’s those field activities that are often impacted by budget cuts – like Hampton Roads.

    So, Hampton Roads – and other DOD operations in Va that are much more susceptible to the sequester.

    Even what appears to be totally non-govt businesses in Washington are often 2nd and 3rd order companies – which provides goods and services to other companies that, in turn, provide goods and services to Govt contractors, etc.

    It’s not that NoVa could not use this as an incubator for truly independent private sector business – it’s just that any new or cutting edge technology – the govt , especially the HQ folks are themselves interested in and also want to adopt – and, in fact, budget reductions actually can drive the adoption of technology to replace downsized staffing.

    When you see fancy new websites for or new FEMA flood maps, modernized post offices, Medicare electronic health records, – it often starts and proceeds – in Washington.. and more often than not with private sector actually doing virtually of of the actual work under the direction of the Govt HQ folks.

    All of this goes on – no matter what happens to the DOD budget.

    because Washington is not just DOD – and DOD is not the entire Federal budget.

    If you cut ships or aircraft – you don’t hurt Washington.

    If you cut entitlements like Medicare or Medicaid – it doesn’t hurt Washington… you still have the HQ folks who have to preside over the administrative operations that actually distribute the budget money.

    The sequester no more hurts Washington than a cut in the Virginia budget would hurt Richmond… it hurts the operations across the state that Richmond directs.

    1. Larry – you ought to get out of Fredricksburg more often. Come on up. I’ll introduce you to a few of the tech entrepreneurs in NoVa. You too, Jim. We’re short on meat pie shops and microbreweries but we do have these guys:

      I can think of many more, bigger NoVa startups not on this list – like Appian. Almost none of them have any particular affinity to the Federal government.

      Unfortunately, I have to concede one thing to Jim – Hardywood does brew some fine beer.

  3. LarrytheG Avatar

    There ARE startups in NoVa and they DO have the potential to be entirely independent of the govt – but take the first one:

    ” What they do: threat intelligence platform (TIP) that can aggregate and organize complex cybersecurity system information via a dashboard”

    I don’t doubt for a minute this is a huge private sector issue – but at the same time – how many times has DOD, the State Dept, and dozens of other govt sites been penetrated?

    Here’s another: ” Oppleo Security (Arlington, Va.)
    Investors: CIT, Mach37 accelerator, unnamed angel investors
    What they do: cybersecurity threat assessment, management and defense systems”

    here’s another – one that Jim Bacon knows up close and personal:

    ” Distil Networks (Arlington, Va.)
    Investors: Bessemer Venture Partners, Foundry Group, Techstars, ff Venture Capital, Idea Fund and Correlation Ventures
    What they do: a cybersecurity startup that specializes in blocking malicious bot-based (automated) attacks on enterprise customers.”

    WHERE do these workers come from to start with?

    I would assert that many came to the Washington area in the first place to work for DOD or NSA or a variety of govt agencies and THEN – branched out when they realized like a lot of early govt work – that it had civilian sector value also.. aka.. drones… GPS satellites, etc…

    The govt is and always has been an enormous developer and consumer of technology and especially bow-wave technology that needs govt funding that private industry will not spend money on until it’s ready for prime time.

    All I’m saying is that Washington will always be a govt-centric place and that a lot of what the govt works on – also has private sector value – and it’s a good match – and it’s good for Virginia not only for the economic value to NoVa and it’s tax value to the state – but it’s a place for properly educated RoVa kids to come for a job rather than remained unemployed where they grew up.

    One more thing – few folks actually realize how ObamaCare is funded much less in what amount.

    Well – the money part is about 500 billion – but none of it comes from general revenues – it’s new/additonal money (to the Washington Metro area) – and it has spawned an industry of which Washington now has it’s share as the HQ for that provides insurance to 20+ million folks. The folks that direct and manage Obamacare – both govt and private sector – are now in Washington doing their thing – 500 billion dollars worth – and yes I strongly suspect they appreciate craft beer also.

    1. Since you asked …. here is the bio for the CEO of Threat Quotient …

      President & Chief Executive Officer
      John Czupak
      As the President and CEO of ThreatQuotient, John Czupak drives the company’s global expansion and manages financial growth. John has played a critical role in multiple companies that resulted in successful liquidity events. Prior to ThreatQuotient he served as General Manager for Cisco Systems’ Advanced Malware Protection (“FireAMP”) product line following its $2.7 billion acquisition of Sourcefire, Inc. John served in a number of additional roles during his 12-year career at Sourcefire, including Senior Vice President, Corporate and Business Development, General Manager FireAMP and Senior Vice President, International & Business Development. Before Sourcefire, John was the SVP of Worldwide Sales for Mountain Wave, Inc., which was acquired by Symantec Corporation in July of 2002. Prior to Mountain Wave, John was the Vice President of Worldwide Channels for Riverbed Technologies, a leader in mobile and wireless computing. Earlier in his career, John was an original member of the management team and Vice President of Asia Pacific and Latin America for AXENT Technologies. John also serves as an Advisor and Board member to a number of technology companies, including Sonatype, PFP CyberSecurity and Cybrary.

      I don’t see a lot of government agencies in there.

      The CEO of Distil Networks is impossibly young and has never worked for the federal government nor for any federally-focused civilian company. is a great example of mis-understanding. It’s a web site. The $500B is what flows through the website not the cost of creating the web site. The web site was originally built by a Canadian company – CGI (lead contractor). They may, or may not, have done the work in Washington. When CGI was widely blamed for poor work the contract moved to Accenture, an Irish company. While I don’t know where Accenture does this work I do know they have a substantial Federal delivery center … in San Antonio, Texas.

      When you say none of Obamacare’s funds come from general revenues I have no idea what you mean or why it matters. I know you like and believe the liberal media so here is a pretty good article from the Washington Post –

      ” …$318 billion is generated by having those who earn a gross income over $200,000 pay 3.8 percent of investment income toward Medicare’s hospital insurance.”

      That’s a new tax that has nothing to do with healthcare or insurance. I guess it doesn’t qualify as “general revenue” because it is permanently earmarked to pay for Obamacare. Why does that matter?

  4. Not so sure about all this for there are serious challenges facing Northern Virginia …..and Tidewater as the federal debt soars which could cause major turmoil with the coming economic recession.
    Some elements of this: Fairfax Schools is facing a financial crisis and the last head of the school system just quit after 19 months to go work for a non profit foundation in Ohio. Class sizes are 40%+ higher than recommended or allowed by law in many states. Some 40% of school pupils receive free lunches and the demographics are heavily weighed toward immigrants. A high percentage live in single parent homes with that parent working full time.
    And the Metro is facing bankruptcy with board members insisting on a sales tax designated for transportation be put in place in Maryland and especially Virginia. Most of the financial hole is in the Silver line in Virginia going to the Dulles Airport which is still under construction and will not be fully operational until after 2020. There is a maintenance and safety crisis and the Metro borrowed billions of dollars to construct the Silver line in Virginia. Metro is now threatening to close this venture into non-urban Virginia unless the Commonwealth comes up with the financing. This underutilized line is the cause of most of the Metro’s deficit.
    And while there is a boom in commercial and apartment building construction along the Silver Line vacant commercial office space across the rest of the region is now over 30% and growing.
    And, Virginia is perhaps the state most dependent on federal spending in the Nation. For example, the 25,000 employees at the Shipyard in Newport News are dependent on federal funds which have been borrowed for more than two decades. And Southwest and Southside Virginia where I grew are also totally dependent on federal spending. If you take SS, Medicare, Medicaid, student loans and the redistribution of taxes collected in Northern Virginia and Tidewater across rural Virginia the entire state is highly dependent on federal spending.
    So I am not as optimistic as some are. One reason is that the nation no longer has the same power to spend itself out of an employment recession like what happened under Reagan, Clinton, Bush #2 or Obama. We are now approaching a national fiscal crisis which is not caused by Social Security or Medicare. Some see this as an opportunity to dramatically divest the nation of such Social Spending.
    And Americans are desperate for someone to have solutions which is why Bernie and The Donald did so well. So Northern Virginia and the entire Commonwealth does have challenges. Virginia is facing challenges not seen since 1932.

    1. TooManyTaxes Avatar

      While there are positive signs of economic growth in NoVA (see McAuliffe’s recent remarks), I tend to be reasonably pessimistic about the region long term. Fairfax County continues to see little appreciation in residential assessments, significant vacancies in commercial properties, and relatively weak job growth at the high end. Meanwhile, both the County and the Schools have excessively generous pension plans and major unfunded liabilities thereto. The Schools are losing many talented teachers in the 5-15 years of experience range. Yet, elected officials seem unable to move compensation from defined benefit plans that exceed neighboring localities to salaries. Voters who broke heavily for Clinton and approved several bond issues rejected a meals tax largely because the did not trust FCPS management and school board members to operate efficiently.

      The Schools continue to see considerable growth at rates much faster than general population growth and most of the growth is from low-income households and non-English-speaking families. The County largely closes its eyes to enforcement of occupancy limits and the Schools ignore non-resident students who should leave or pay tuition. Here I am talking not about children of illegal immigrants, but children whose parents and guardians don’t live in Fairfax County and pay real estate taxes.

      Tysons is showing some growth in residents and businesses moving to near the rail stations. Both commercial and residential construction continues and real estate assessments are up in Tysons. However, according to Fred Selden, director of Planning and Zoning for the County, both commercial and residential growth lag projections. His remarks were made on November 29.

      Despite positive efforts over the last 5 plus years by VDOT, transportation in Fairfax County is a living hell. VDOT cannot catch up to the decades of irresponsible county government that approved rezoning applications at levels well in excess of what the transportation network could handle. And, of course, decades of mismanagement at WMATA has Metrorail and bus services in rapid decline and with an unsustainable cost structure.

      If I lived in RoVA, I’d be expecting to see my real estate taxes increase substantially from year to year as the Golden Goose ain’t laying those golden eggs at the rate she used to.

  5. LarrytheG Avatar

    Don – do you know how many govt agencies have cisco-driven network infrastructure, firewalls, switches, backup storage?

    I’d bet you dollars to donuts – some of their biggest customers is the govt and govt contractors!


    Don – the folks who administer and operate Obamacare – both the govt and the insurance companies are headquartered in Washington at HHS… and it includes the IRS which deals with the credits and payments done on the 1040.

    In terms of taxes and general revenues.

    Not a penny to pay for Obamacare comes from General Revenues – therefore does not add to the deficit and debt. In fact, it generates right now – excess revenues that actually REDUCE the deficit.

    Not adding to the deficit and debt – MATTERS!

    WHERE the actual money comes from for Obamacare is funny… it comes from reducing tax breaks in the tax code!

    By the way, the 318 billion number you cite is NOT for one year – its for 10 years! It’s just one of several different reductions of tax breaks that adds not one penny to the deficit.

    It’s going to be a tough row to hoe for anyone who wants to replace Obamacare with TAX CREDITS which WILL add to the deficit!

    The GOP folks ought to read that WaPo article… if they are serious about a real replace!

  6. LarrytheG Avatar

    re: ” Wayne Chiang
    Chief Architect And Co-Founder, Cybersecurity Researcher, ThreatQuotient…………..

    Prior to co-founding ThreatQuotient Mr. Chiang held key positions with IBM Global Business Services to deliver technical implementations under the Air Force Financial Management Transformation contract to save the USAF more than $200 million over 10 years. Additionally, Wayne has first hand tactical operations experience during his time with the General Dynamics Security Operations Center where he designed strategies to enhance network security operations. His deep experience in delivering technology operations has spanned many different areas including Federal government, healthcare, and the Defense Industrial Base. “

  7. LarrytheG Avatar

    Threat Quotient – Board of Directors – Aaron Higgby

    previous experience:INTREPIDUS GROUP, INC

    DUNS: 796603921


    3100 – Nuclear Regulatory Commission
    2100 – ARMY


    Government Contact Other:
    Email: aaron.higbee
    Phone: (703) xxx-xxxx,INC-copyright_FEDMINE_211319.html

    this is not unusual at all in Northern Va and the Washington Metro Area.

    it’s the rare person or company that has no connection at all with the Federal Govt although a fair amount of it is 2nd and 3rd order where sub-contractors and companies that just sell goods and services are providing the govt and it’s contractors with those things.

    It’s not a thing to deny – the Feds are going to hire contractors and buy goods and services SOMEWHERE so the Wash Metro area is as good as any other place.

    But it IS a reality that it IS the government which is funded by taxpayers that is the major employer – that’s just the reality. If truly independent businesses can essentially use the Wash Metro area as an incubator for the private sector – GREAT – it just means more good news for Va!

  8. If it’s true that:
    * U.S. manufacturing is far from dead, but its future is automation not manual labor;
    * Kids who want a good job need to learn how to use their brains not their hands;
    * Millennials are moving to urban walkable communities with nightlife and other amenities not the ‘rural heartland’;
    * Big institutions tend to go where the people already are;
    * The more complex society becomes, the more government rules and regulations and permissions determine how things happen, and writing all those rules is big business;
    Then, on all these measures, Northern Virginia has the advantage.

  9. LarrytheG Avatar

    How ironic is it that most of the jobs are in the urban areas that vote Blue and most of the lower education, unemployment, SS disability and MedicAid, teen pregnancy, and oxycodone drug use is rural that votes GOP?

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